Tuesday, July 22, 2014

There are various tests to find out resistance – just
do a shopping in T Nagar area – resist not to get into any Jewellery shop – and
try resisting not getting into any of their offers or schemes. In the olden
days when you did not have so much of TV channels and spare time, magazines
provided the best entertainment…… and the butt of many jokes was ‘borrowing’ –
not of money but of jewels and apparels for attending functions…… perhaps those days are gone by and people have stopped borrowing / lending or
perhaps it is no longer one worthy of a joke. !!

Gold
traditionally viewed as a safe-haven investment in times of economic
uncertainty and geopolitical tension. It is also used as a hedge against rising
inflation and depreciation in the value of paper currencies. Gold has been
money for many reasons – it can be traded easily; it always has a high value to
weight ratio; can be divided into smaller units without destroying; tougher to
have counterfeits and the scarcity of gold has only been going up.

More than
all this, Gold has always been used as a symbol of status and power.

It is another matter altogether that
it is one item (is there anything else in the same bracket) – where one never
gets full value of what one pays for ……. Think of any bulk commodity – you end
up paying for the quantity received but here the hapless consumer ends up
paying for that ‘wastage loss’ – the quantity reportedly lost during
the process of manufacturing. Wastage charges are expressed as % of weight of
gold ornament ~ and some are apprehensive that consumers end up paying more
than the actual quality that they get.

In all melee, the middle class mentality, is to buy Gold in
small grams and keep augmenting their kitty for future – for marriage of their
daughters and the like – over the years, every shop worth its
name have evolved some schemes to entrap buyers – fabulous ‘gold saving
schemes’ – which promise gold tomorrow at today’s rate. In most schemes, the buyers are required to
deposit fixed amount every month (monthly instalments) - at the end of fixed tenure, the customer
gets gold worth full value of the scheme which may have some bonus amount
too. There are some schemes where they
convert the monthly instalments into grams of gold at prevalent rates ….. some
offer gold at lowest rate of that month and so on. That catch here is –you are offered only Gold
jewellery (ornaments – bangles, chains and the like) and not Gold coins / bars
…..

More than you
gaining – the first obvious advantage for the seller is – you are committed to
buying only from that jeweller and only gold ornaments at that …. Some Financial analysts point out that the
traders provide marginally a higher % of returns close to 18% as against the
rate around 9% that you would get on a Fixed Deposit.

While one may have to rethink on
whether it is wiser investing and getting fixed to a particular trader for a
marginally higher rate – here comes another missive from the Govt. …… The
Jewellers will not be in a position to offer even what they have been offering
– for the simple reason that these schemes have been brought under the
definition of deposits under the Companies Act. So, the effective return cannot
be more than 12 per cent and the total amount of deposits has to be within 25
per cent of the company's (other than banks and non-banking finance companies)
net worth. That would mean a loss of say 6 – 7 % for the investors. Earlier, money put in these schemes were seen
as advances for future purchase. "The tenure for these schemes will have
to be restricted to a year. Currently, the tenure ranges from one to three
years." The new rule in the interest of investor protection, also
prescribes that jewellers will be able to take only as many deposits as they
can repay. Of course unrecognized, petty players would not come under the
net.

Some jewellers
reportedly are closing their schemes
informing their customers that they can chose to buy jewellery of the savings
done thus far or take back the value. So
far, there was no hedge against Jeweller defaulting payment, now reportedly the
laws are harsher – that the person running the scheme can be jailed. According to jewellers, the new
Companies (Acceptance of Deposit) Rules, 2014, limits the interest rate that
companies can offer depositors to 12.5 per cent, and caps the total deposits
collected to within 25 per cent of their net worth.

Is it good for
the customer or for the Jeweller or benefits none – time will tell.